U.S. presses China on currency

He said the yuan's appreciation would "not erase our global trade deficit, nor our deficit with China," while the "bilateral trade deficit is likely to persist."

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"But Chinese exchange rate adjustment is critical to removing a major distortion in the global economy, to rebalancing China's economy, and to ensuring strong, and balanced global growth," he said.

The Secretary said he was working in multilateral channels, such as the G-20, the Asia-Pacific Economic Cooperation, or APEC, and the International Monetary Fund "to press China to achieve balanced, sustainable growth, particularly by allowing prompt, meaningful, and continuing appreciation" of the yuan.

Chinese Foreign Ministry spokeswoman Jiang Yu told reporters at a news conference in Beijing following Geithner's comments that appreciation of the yuan would not resolve the deficit problem between the U.S. and China, and added that it would not resolve America's unemployment problem. Pressure would not only fail to solve the problems, but could have the opposite effect, she said.

A delegation of Chinese commerce officials and nearly 50 business leaders left for the U.S. on Tuesday to purchase goods and services ahead of Congressional hearings on the issue, state-run media outlet China Daily reported on Thursday.

In contrast to Geithner's more measured tone, a lawmaker who introduced a bill to the House of Representatives in May to address the issue, had harsher words on Wednesday. Rep. Tim Ryan, R-OH, told lawmakers on the House Ways and Means Committee at a hearing that China's "years" of "blatantly violating" international norms and standards on trade through its "currency manipulation" had to be countered. He charged that China had been manipulating exchange rates to gain an unfair competitive advantage by making a large-scale intervention in one direction in the exchange market.

Fred Bergsten, director of the Peter Institute for International Economics, told the committee that China had been intervening at an average of about $1 billion per day over the past several years, by purchasing dollars with yuan to keep the price of the dollar up and the price of its currency down.

Economists differ on their predictions and estimates of the undervaluation of the yuan, which ranged from 12 to 40 percent, according to a 2009 report by the government-created U.S.-China Economic and Security Review Commission. Ryan said Chinese imports into the U.S. market were receiving an effective subsidy of up to 40 percent, while U.S. exports to China were being hit "with an effective tariff up of up to 40 percent."

Ryan said the policy has hurt "small manufacturers who do not have the resources to absorb the glut of artificially undervalued goods coming from China." He said the U.S. must "put teeth" on its calls for China to let its currency rise by passing the Currency Reform for Fair Trade Act (H.R. 2378). The legislation would treat currency undervaluation as a prohibited export subsidy, he said, noting that it would let the U.S. impose "reasonable countervailing duties or antidumping measures," in line with World Trade Organization rules. So far 143 of the House of Representatives' 435 members have cosponsored the bill, he added.

Ira Shapiro, a trade lawyer for Greenberg Taurig LLP, and former Senate staffer and Clinton administration trade official, said he opposed legislative approaches while favoring a continued effort at multilateral diplomacy, negotiation, and recourse to the WTO when necessary or appropriate. Doing so, he said, would ensure a successful rebalancing of major currencies and the global economy while "avoiding the possibility of a cycle of retaliation and a damaging trade and economic war at a time when the U.S. and global economy remain fragile."